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Estimation of Ask and Bid Prices for Geometric Asian Options

Author

Listed:
  • Tao Chen
  • Kaili Xiang
  • Xuemei Luo

Abstract

Traditional derivative pricing theories usually focus on the risk-neutral price or the equilibrium price. However, in highly competitive financial markets, we observed two prices which are called bid and ask prices; then the unique risk-neutral price fails to hold. In this paper, within the framework of conic finance, we provide a useful approach to evaluate the ask and bid prices of geometric Asian options and obtain the explicit formulas for the ask and bid prices. Finally, numerical examples show that the higher the market liquidity parameter , the wider the spread and hence the less the liquidity.

Suggested Citation

  • Tao Chen & Kaili Xiang & Xuemei Luo, 2019. "Estimation of Ask and Bid Prices for Geometric Asian Options," Discrete Dynamics in Nature and Society, Hindawi, vol. 2019, pages 1-9, March.
    • Handle: RePEc:hin:jnddns:6276250
    DOI: 10.1155/2019/6276250
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